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RF SC standardizes legal cost awards

On 21.01.2016 the Plenum of Supreme Court of the Russian Federation (RF SC) adopted a resolution called “On certain applications of the legal cost recovery legislation”. These are the first guidelines from the newly created supreme judicial authority on aspects of legal cost recovery, and it is the progress of this resolution that was closely monitored by the legal profession and the judiciary alike. According to the RF SC, the drafting of the Resolution was preceded by the receipt of some 700 requests from arbitrazh and general jurisdiction judges for clarification of the relevant provisions of the procedural legislation.

Let us take a look at the key provisions of the Resolution that address the focal points of practical application of law.

Clause 2 of the Resolution asserts that the list of legal costs provided in the procedural law (Civil Procedure Code of the Russian Federation (RF CPC), Arbitrazh (Commercial) Procedure Code of the Russian Federation (RF APC), Judicial Administrative Procedure Code of the Russian Federation (RF JAPC) is open-ended and includes not only expenses incurred directly upon the commencement of litigation, but also those incurred in the run-up to legal action where such expenses are necessary, and the evidence obtained by a party before filing is relevant and admissible. Such expenses can also include the costs of document legalization, judicial survey of property, and execution of power of attorney for representation in a specific case.

Until recently, the courts have been fairly conservative in their definition of legal costs and only awarded expenses incurred in the context of litigation, which was not quite reasonable because pre-action activities, particularly in the context of business disputes, are quite often instrumental to the success of litigation and involve the collection of evidence.

Another provision vital to the application of law is par. 2, cl. 13 of the Resolution, where the Plenum explicitly tells the lower-level courts that the mere fact that a party's representative is known is not in and of itself reason enough to justify his legal fees.

Indeed, in seeking the recovery of legal costs, the parties quite often attempt to validate their costs by citing, first of all, the market profile of their counsel, while forgetting the need to demonstrate the reasonableness of the expenses incurred in the case in terms of its challenges. The Supreme Court has once again reiterated the need to prove commensurability first of all in the context of the specific case.

The RF SC has also explained the procedural aspects of assigning the right to recover legal costs (cl. 9 of the Resolution). The Court said that assignment can involve costs not yet awarded pursuant to the rules of arts. 382, 383 and 388.1 of Civil Code of the Russian Federation (RF CC), with no substitution of the litigant, because the right to the awarded receivables will not devolve on the successor until after the court renders its ruling to this effect.

Note also cl. 11 of the Resolution, which forbids the court from reducing at its discretion, without a request from a party to the process, the amount of legal costs. However, where the amount sought to be recovered is patently unreasonable and excessive, the court shall be entitled to reduce the amount of legal costs pursuant to arts. 2 and 41 of the RF APC. The provision under discussion is a reiteration of the Constitutional Court's position already on record and should be welcomed by the legal community.

Worthy of note is the Plenum's position on the adjustment of the amount claimed where shown to be unreasonable; where this is applicable, the RF SC has indicated that such behaviour by the plaintiff may be deemed an abuse of rights, with the resulting disallowance of the legal costs in whole or in part (cl. 22 of the Resolution). The said provision is hardly an innovation; nevertheless, the RF SC has definitely put in place an effective mechanism for preventing bad-faith plaintiffs from claiming unreasonably high amounts.

The guideline provided above is not the only one that addresses the abuse of procedural rights. Cl. 32 of the Resolution says that the court shall be entitled to assign the legal costs to the person that abuses procedural rights and fails in procedural duties, or to disallow the legal costs of such person if his actions or omissions disrupt the court proceedings, protract the process and prevent a court ruling from being rendered.

The Resolution under discussion was indeed eagerly anticipated. Trial lawyers urgently needed uniform guidelines on the provisions of procedural legislation governing the recovery of legal costs, as well as settled case law. The professional community may have expected more from the new Resolution; be that as it may, one cannot underestimate its value because case law will undoubtedly be more consistent in legal cost awards.

The Resolution is available here.